Operationally good performance… • Aban Offshore :: ICICI Securities, report link

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Operationally good performance…
• Aban Offshore reported its Q2FY15 results with revenues at | 1018.5
crore, up 1.7% YoY in line with our estimate of | 1020.2 crore
• EBITDA increased 10.8% YoY at | 589.2 crore, marginally below our
estimate of | 596.8 crore. EBITDA margins stood at 57.8% in Q2FY15
against 53.1% in Q2FY14
• Lower Interest costs, higher other income and lower tax rate
contributed to the increase in PAT by 85.3% YoY from | 79.4 crore in
Q2FY14 to | 147 crore in Q2FY15
Concerns on renewal of contracts ease over last year
Aban Offshore secured orders from ONGC for the deployment of jack-up
rigs Aban III and Aban IV for three years. The contracts are expected to
commence during Q4FY15 and the total value of the orders amount to
| 1114 crore. The contracts are renewed at US$83,400/day, 33.5% higher
rates than the earlier contract. The company does not foresee any
problem in renewals of existing contracts for the near future. The current
decline in crude oil prices will not have an impact on demand for their
rigs unless crude oil prices fall drastically to US$50-60/barrel. Currently,
all rigs are being utilised except for Aban 5, Aban 7 and Tahara, which are
currently under marketing.
Equity funding, refinancing of debt to lower interest costs
Aban Offshore has raised equity through placements of shares via QIB
and conversion of preferential warrants to equity from the promoters. The
company raised ~| 850 crore from issuances of new equity shares. Also,
refinancing of its high cost rupee debt with foreign debt at lower costs
would also help to reduce the company’s finance costs. Also, better cash
flows from the company over the last two years have reduced Aban’s
interest cost to EBITDA ratio from 59.4% in FY13 to 47.4% in Q2FY15. We
expect the company’s interest costs to reduce from | 1,140.6 crore in
FY14 to | 945.2 crore in FY16E.
Asset utilisation - key to operational performance
As per the management, the demand environment for rigs is stable. New
contracts for Aban 5 and Aban 7, which are currently under marketing,
would be the key to Aban’s operational performance in the medium term.
This could lead to upgradation of earnings estimates, which we have still
not factored in our assumption. We expect assets that are due for renewal
to be re-contracted at current rates. Thus, improved asset utilisation will
contribute to higher EBITDA & lower interest costs would lead to better
profitability. We have a HOLD recommendation on the stock with a target
price of | 695, 6.25x FY16E EV/EBITDA.

LINK
http://content.icicidirect.com/mailimages/IDirect_AbanOffshore_Q2FY15.pdf